Ichor Holdings, Ltd. — Q3 2021 Form 10-Q
Reporting period: 13 weeks ended September 24, 2021; nine-month comparison ended September 24, 2021 versus September 25, 2020. Unaudited results. Ichor designs and manufactures fluid-delivery subsystems and components for semiconductor manufacturing equipment.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $262.9m | $227.7m | $809.7m | $669.3m |
| Gross profit / margin | $43.6m / 16.6% | $32.5m / 14.3% | $130.5m / 16.1% | $90.5m / 13.5% |
| Operating income | $21.2m | $12.5m | $64.7m | $27.3m |
| Net income | $18.5m | $10.5m | $56.0m | $20.8m |
| Diluted EPS | $0.64 | $0.45 | $1.93 | $0.89 |
| Operating cash flow | Not stated by quarter | $24.4m | $(1.9)m |
Unless otherwise noted, dollar figures are in millions. Q3 sales rose 15.5% year over year and nine-month sales rose 21.0%. GAAP gross margin increased 230 basis points in Q3 and 260 basis points for the nine-month period. Nine-month non-GAAP net income was $71.5m and non-GAAP diluted EPS was $2.47, versus $39.2m and $1.69, respectively, in 2020; these measures exclude specified items and should be considered alongside GAAP results.
Liquidity, debt and cash flows
- At September 24, cash and cash equivalents were $128.0m and marketable securities were $98.7m. Combined, these totaled $226.7m.
- Debt principal was $165.7m ($164.4m net of debt issuance costs), including $19.2m drawn on the revolving facility. The company reported $8.8m of debt due within 12 months.
- Nine-month operating cash flow of $24.4m was offset by $117.2m of investing outflows and $32.0m of financing outflows. Investing included $105.0m of marketable-security purchases and $18.7m of capital expenditures; financing included $36.6m of debt repayments.
- Working capital absorbed cash: inventory increased $59.2m and accounts receivable increased $20.7m, partly offset by a $21.2m increase in accounts payable.
- Management said cash, revolving-credit availability and operating cash flows should cover anticipated needs for at least 12 months.
Changes, outlook and risks
- Management attributed sales growth primarily to strong demand from continued expansion in the global wafer-fabrication-equipment market. Higher factory utilization supported improved gross margins.
- Supply-chain constraints and Malaysia’s government-ordered movement restrictions limited production. The company reported Q3 output in Malaysia was reduced 40%; the site represented half of its weldment capacity. Materials, logistics and labor costs and operating inefficiencies also pressured performance.
- On October 29, 2021, after quarter-end, Ichor refinanced its existing credit agreement. The new facility has a $150m term loan and a revolving facility of up to $250m, extends maturity to October 2026, lowers specified borrowing costs, replaces LIBOR with BSBY, and raises the maximum permitted leverage ratio from 3.0x to 3.5x.
- The filing provides no specific revenue, earnings or margin guidance. Management’s liquidity statement is its principal near-term outlook.
- Unusual or adjusted items included facility-closure costs, inventory write-offs, a prior-year contract-settlement loss, and ERP/SOX-related costs. Management stated the Union City facility closure was complete and no further closure charges were expected going forward.
- The filing identifies pandemic-related and supply-chain uncertainty; it reports no material change to previously disclosed risk factors, no material pending or threatened litigation, and effective disclosure controls as of period-end.
Important facts for investors to verify
- Whether Malaysia production and supplier delivery constraints ease, and whether demand converts into shipments without further margin pressure.
- Whether elevated inventory and receivables normalize and operating cash flow improves; inventory obsolescence and working-capital requirements remain relevant.
- The effective borrowing costs, covenants and liquidity available under the October 2021 refinancing, including the transition from LIBOR to BSBY.
- How much reported earnings growth depends on non-GAAP adjustments, and how recurring costs such as share-based compensation and intangible amortization affect GAAP results.
- Whether the company’s stated 12-month liquidity expectation remains supported by operating cash generation and available credit.